The GBP/USD Rate Forecast Down to 1.30 by End of 2016, Recover to 1.36 by End of 2017
Lloyds Bank analysis suggests the GBP/USD will remain under pressure through the remainder of 2016 but Sterling should perk up through the course of 2017.
Sterling trades familiar ranges against the US Dollar at the time of this article's publication - at 1.3205 we are in the middle of the range that has been traded since the great Brexit vote plunge.
The day after the vote the currency closed at 1.34 - this is the top of the range that has been unbroken ever since.
Meanwhile, support is to be found at the 1.28 region:
Those looking for a better or worse GBP/USD exchange rate in the near- to medium-term may be disappointed by the findings of the FX research team at Lloyds Bank.
Analysts say the exchange rate will remain under pressure over coming weeks ahead of a gradual recovery.
Writing in the bank's latest International Financial Outlook, Head of Economics and Research, Jeavon Lolay says he anticipates near-term declines as a result of the likelihood of the Bank of England (BOE) cutting interest rates from their current 0.25% level to 0.10% in November.
This will have the effect of weakening the Pound since lower interest rates attract less inflows of foreign capital, which prefer countries with higher yields and returns.
The Dollar on the contrary could rise in the final part of the year as expectations remain relatively high (at over 60%) that the Federal Reserve will do the opposite and actually raise interest rates, with the effect of boosting the dollar, due to the increase in foreign capital inflows attracted to those higher rates of return.
“Near term, we expect the US dollar to benefit from a recovery in expectations of a rate hike by the Fed by end year. Assuming a further decline in UK Bank Rate to 0.1% and a US rate hike in Q4, we forecast GBP/USD to edge lower towards 1.30 by year end," says Lolay.
Looking ahead to the long-term and the rate is expected to recover to the 1.36 level in 2017, he added, due to, “the narrow scope for lower policy rates in the UK,” which, “suggests that the downside for GBP/USD looks limited.”
“Thereafter, we expect GBP/USD to gradually drift higher to 1.36 by the end of 2017”
GBP/USD has risen in recent weeks, from circa 1.28 lows to a high of 1.3447 on September 6.
The appreciation has been due to easing fears about the impact of Brexit on the UK economy in the short term.
“It is slowly becoming apparent that far from being a 'bomb under the economy', that Brexit is likely to be a process rather than a sudden shock, and while it is true that no one currently knows what form Brexit will take, there will undoubtedly be both pros and cons to the process in the coming months and years,” says Michael Hewson at CMC Markets.
Quite what the longer-term impact is likely to be is uncertain, given a key clue will come in the form of the new trade deal between the UK and Europe.
Latest Pound / US Dollar Exchange Rates
  | Live: 1.3335▲ + 0.06%12 Month Best:1.3789 |
*Your Bank's Retail Rate
| 1.2881 - 1.2935 |
**Independent Specialist | 1.3148 - 1.3201 Find out why this is a better rate |
* Bank rates according to latest IMTI data.
** RationalFX dealing desk quotation.
Technical Studies Bullish on GBP/USD in the Short-Term and Long-Term
Lloyd’s Bank's technical outlook in the short-term, is more bullish than that contained in their fundamental analysis reported above.
“GBPUSD held channel and trend support convincingly yesterday, rallying off a low at 1.3236. While above 1.3240/20 support, and in line with 10y rate spreads and mechanical studies, we favour a move back through initial resistance at 1.3350/60, towards key resistance in the 1.3480-1.3570 region,” said Lloyds FX analyst Robin Wilkin in a recent report.
Nevertheless, the longer-term outlooks from both technical and fundamental analysts are more similar, with technical studies confirming, “long term, we believe we are in the last phase of the bear trend that started back in 2007 at 2.1160."
And that, "while a multi-month bottoming process is expected, we are watching current price action around the key levels above to suggest if 1.2800 was actually a major low or not.”
This appears to chime with Lolay’s view that GBP/USD will pull-back to 1.3000 this year but then recover to 1.3600 in 2017.
